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Home , Agudat Yisrael, Ariel Sharon, Limor Livnat

Order Code IB82008

CRS Issue Brief for Congress Received through the CRS Web

Israel: Background and Relations with the

Updated July 25, 2005

Carol Migdalovitz Foreign Affairs, Defense, and Trade

Congressional Research Service ˜ The Library of Congress CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Historical Overview of

Government and Politics Overview Current Political Situation

Economy Overview Current Issues

Foreign Policy Middle East Iran Palestinian Authority Egypt Syria Other

Relations with the United States Overview Issues Peace Process Trade Aid Security Cooperation Other Current Issues Military Sales -related Cases Intellectual Property Protection U.S. Interest Groups

Map of Israel IB82008 07-25-05 Israel: Background and Relations with the United States

SUMMARY

On May 14, 1948, the State of Israel rael’s vision of a Palestinian state remains declared its independence and was immedi- unclear. Israel concluded a peace treaty with ately engaged in a war with all of its neigh- Egypt in 1979 and with Jordan in 1994, but bors. Armed conflict has marked every de- never reached an agreement with Syria or cade of Israel’s existence. Despite its unstable Lebanon. It unilaterally withdrew from south- regional environment, Israel has developed a ern Lebanon in 2000. vibrant parliamentary democracy, albeit with relatively fragile governments. Prime Minis- Israel’s relations with the European ter Sharon formed the current three-party Union are important because the European coalition in January 2005 in order to secure countries collectively represent Israel’s second support for his plan to withdraw from the largest trading partner and a participant in the and four small settlements in the peace process. However, Israel considers the , now scheduled to be implemented EU to be biased in favor of the after August 15. Some observers are already and objects to its assuming an even larger role predicting an early national election some in the peace process. time after disengagement. Since 1948, the United States and Israel Israel has an advanced industrial, market have developed a close friendship based on economy in which the government plays a common democratic values, religious affini- substantial role. The economy has recovered ties, and security interests. U.S.-Israeli bilat- from declines experienced due to the Palestin- eral relations are multidimensional. The ian intifadah (uprising) against Israeli occupa- United States is the principal proponent of the tion and the international high-tech crash. Arab-Israeli peace process, but U.S. and Finance Minister is Israeli views differ on various peace process attempting to liberalize the economy by cut- issues, such as the fate of the Golan Heights, ting the role of government. , and Israeli settlements. The United States and Israel concluded a free-trade agree- Israel’s foreign policy is focused largely ment in 1985, and the United States is Israel’s on its region, Europe, and the United States. largest trading partner. Since 1976, Israel has The government views Iran as a strategic been the largest recipient of U.S. foreign aid. threat due to its nuclear ambitions, and blames While the two countries do not have a mutual Iran for supporting anti-Israel terrorists. Israel defense agreement, they do have very close negotiated a series of agreements with the security relations. Palestinians in the 1990’s, but the Oslo peace process ended in 2000, shortly after the begin- Current issues in U.S.-Israeli relations ning of the intifadah. Israeli and Palestinian include Israel’s military sales to China, inade- officials resumed contacts after the death of quate Israeli protection of U.S. intellectual Yasir Arafat. Their immediate focus is on the property, and espionage-related cases. success of Israel’s disengagement from Gaza. Both sides have accepted the internationally- See also CRS Issue Brief IB85066, brokered framework for achieving a two-state Israel: U.S. Foreign Assistance and CRS Issue solution, known as the “Roadmap.” Yet, Is- Brief IB91137, The Middle East Peace Talks.

Congressional Research Service ˜ The Library of Congress IB82008 07-25-05

MOST RECENT DEVELOPMENTS

On July 11, Israeli press reported that Israel is requesting about $2.25 billion in special aid in a mix of grants and loan guarantees over four years, with one-third to be used to relocate military bases from the Gaza Strip to Israel in the disengagement from Gaza and the rest to develop the and Galilee regions of Israel and for other purposes, but none to help compensate settlers or for other civilian aspects of the disengagement. On July 18, the Israeli (parliament), by a wide margin, defeated bills to postpone the disengagement. Finance Minister Benjamin Netanyahu and Education Minister , who oppose disengagement and have ambitions for higher office, were absent from the vote. Most other members of Prime Minister Sharon’s party voted against postponement. On the following days, police and soldiers prevented anti-disengagement protesters led by the Council of Jewish Communities in Judea, Samaria, and Gaza (Yesha Council) from marching from southern Israel to the Gaza Strip. On July 22, Secretary of State Condoleezza Rice visited Israeli Prime Minister at his ranch. She reportedly emphasized the importance of coordinating the Gaza withdrawal with the Palestinian Authority (PA) and using it to strengthen Palestinian President Mahmud Abbas. She also reiterated a desire to see disengagement form the basis of a renewed diplomatic process based on the Roadmap.

BACKGROUND AND ANALYSIS Historical Overview of Israel1

The quest for a modern Jewish homeland was launched with the publication of Theodore Herzl’s The Jewish State in 1896. The following year, Herzl described his vision at the first Zionist Congress, which encouraged Jewish settlement in Palestine, then part of the Ottoman Empire. In 1917, the British government issued the Balfour Declaration, supporting the “establishment in Palestine (which had become a British mandate after World War I) of a for the Jewish people.” Britain also made conflicting promises to the Arabs concerning the fate of Palestine, which had an overwhelmingly Arab populace. Nonetheless, Jews immigrated to Palestine in ever greater numbers and, following World War II, the plight of Jewish survivors of the Nazi holocaust gave the demand for a Jewish home greater poignancy and urgency. In 1947, the U.N. developed a partition plan to divide Palestine into Jewish and Arab states, with Jerusalem under U.N. administration. The Arab states rejected the plan. On May 14, 1948, the State of Israel proclaimed its independence and was immediately invaded by Arab armies. The conflict ended with armistice agreements between Israel and its neighbors: Egypt, Jordan, Lebanon, and Syria. Israel engaged in armed conflict with some or all of these countries in 1948, 1956, 1967, 1973, and 1982. Since the late 1960’s, it also has dealt with the asymmetric threat of terrorism from Palestinian groups. In 1979, Israel concluded a peace treaty with Egypt, the predominant Arab country, thus making another multi-front war unlikely. Israel’s current relations with its neighbors are discussed in Foreign Policy below.

1 For more, see Howard M. Sachar, A : From the Rise of to Our Time, New York, Knopf, 1996.

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Government and Politics

Overview

Israel is a parliamentary democracy in which the President is chief of state and the Prime Minister is chief of government. The President, Moshe Katzav, is elected by the unicameral parliament (the Knesset) for a seven-year term. The Prime Minister, Ariel Sharon, is the of the Likud Parties in the Knesset party with the most seats in parliament. Party Seats The Israeli is highly Likud 40 fragmented, with small parties Labor/ 19 exercising disproportionate power due to 15 the low vote threshold for entry into 11 parliament and the need for their National Union 7 numbers to form coalition governments. (NRP) 6 National elections must be held at least /Yahad 6 United Torah (UTJ)** 5 every four years, but are often held Am Ehad 3 earlier due to difficulties in holding /Ta’al 3 coalitions together. The average life National Democratic Assembly/Balad 3 span of an Israeli government is 22 2 months. The peace process, the role of religion in the state, and political * Elected as Yahad/Democratic Choice scandals have caused coalitions to break **Elected as , 3, Degel Hatorah, 2 apart or produced early elections.

As a result of the January 2003 national elections, there are currently 17 parties or blocs represented in the 120-seat Knesset. Sharon’s first government was a coalition of the right wing Likud, secularist Shinui, far-right National Union, and the orthodox Key Cabinet Officers National Religious Party (NRP). Ministers from National Union and Ariel Sharon, Prime Minister NRP resigned or were ousted because (also holds Social Welfare and of their opposition to Sharon’s plan to Science and Technology portfolios) disengage (withdraw) from the Gaza , Vice Premier Strip and four northern West Bank , Vice Premier and Minister of settlements. Shinui was forced out after Industry, Trade, and Labor it voted against a budget to increase , Deputy Prime Minister and Foreign Minister funding for religious services and , Minister of Defense schools designed to attract other Benjamin Netanyahu, Minister of Finance religious parties to a new coalition. Limor Livnat, Minister of Education, Culture, and Sport On January 10, 2005, Sharon , Minister of Immigrant Absorption formed a new government to ensure and Minister of Justice approval of his disengagement plan. Ophir Pines-Paz, Minister of the Interior Because a third (13 members) of his own Likud party oppose disengagement, Sharon had to build a

CRS-2 IB82008 07-25-05 coalition large enough to overcome the loss of their votes. The present coalition includes Likud, Labor, and the orthodox United . The government was narrowly approved by a vote of 58-56, only because opposition leftist and Arab parties which favor disengagement abstained. The next national election is scheduled to be held in November 2006, but many analysts predict an early national election for various reasons: due to difficulties with disengagement, to enable Sharon to ride a wave of disengagement success, or to ease or postpone expected international pressure on Israel to take additional steps in the peace process after disengagement.

Israel does not have a constitution. Instead, 11 Basic Laws lay down the rules of government and enumerate fundamental rights; two new Basic Laws are under consideration. The Basic Laws may eventually become chapters in a constitution. Israel has an independent judiciary, with a system of magistrates courts and district courts topped by a Supreme Court.

There is an active civil society. Some political pressure groups are especially concerned with the peace process, including the Yesha Council, which represents local settler councils in the West Bank and Gaza Strip and opposes any withdrawal from occupied Arab territories, and , which opposes settlements, the security barrier in the West Bank, and seeks territorial compromise. Both groups have U.S. supporters.

Current Political Situation

On June 8, the Israeli Supreme Court ruled that the plan to disengage from Gaza and laws to compensate evacuated settlers are legal, clearing the way for disengagement to proceed as scheduled after August 15. As reflected in different polls, a fluctuating majority of Israelis favors disengagement. Settler groups and their supporters have seemed to define the terms of the public debate, while supporters have been less vocal. Some settler groups are protesting evacuation by civil disobedience — disrupting traffic and harassing or encouraging members of the security forces to disobey orders. Others, such as Members of the ultranationalist movement, may protest violently. Oil and nails have already been poured on roads during rush hour and threats have been made against Sharon and some ministers. On June 29, after clashes between opponents of disengagement and soldiers and Palestinians, Sharon vowed to end extremist violence and not “allow a lawless gang to take control of life in Israel.”

Sharon has been arguing the case for disengagement more frequently. On June 28, he explained, “We will leave the Gaza Strip, an area where there is no chance of establishing a Jewish majority and which everybody realizes will not be part of the State of Israel under any permanent arrangement. At the same time, we will concentrate our efforts on the areas most important to ensure our existence: the Galilee, the Negev, greater Jerusalem, the settlement blocs, and security zones.” In a televised speech on June 30, the Prime Minister declared that disengagement will have “a decisively positive influence” on security, the economy, and quality of life in the country, help moderate Palestinian forces, and bolster ties with the United States and Egypt. Often, however, Sharon’s has been a lone voice. Many Labor, leftist, and Israeli Arab supporters of disengagement appear reluctant to join a man they have opposed for many years.

As noted above, disengagement from Gaza has split the Likud and intraparty politics are becoming even more heated in anticipation of the next national election. Sharon has

CRS-3 IB82008 07-25-05 several possible challengers/successors with a range of views on disengagement. Probably the strongest challenge comes from former Prime Minister and Finance Minister Netanyahu, who has shifted his position from reluctant supporter to opponent of withdrawal. Deputy Prime Minister Olmert had floated the trial balloon for disengagement before Sharon’s December 2003 speech and still supports it. Netanyahu and Olmert are public rivals. Foreign Minister Shalom often hedges his views, voting for disengagement while voicing doubts. Defense Mofaz is not a Knesset member and is responsible for implementing disengagement, which may determine his political future. Opponents of disengagement have submitted signatures to force the convening of a Likud Central Committee meeting to call an early leadership primary in which they will try to defeat Sharon. The meeting will probably take place after the Gaza disengagement. Some question whether Likud could survive a leadership contest intact. Sharon has charged that “extremists are seizing control of Likud.”

For its part, Labor has indefinitely postponed a leadership primary due to irregularities in a massive new member registration drive. Shimon Peres, the 82-year-old former Prime Minister and Nobel Prize winner, has served as acting leader since months after the party’s loss in the 2003 national election. He wants to implement elements of the Roadmap peace process framework as an incentive to get the Palestinians to fight terror, differing from Sharon who has made the fight against terror a precondition for the next stage of the peace process. Peres’s advocacy of joining the government to support disengagement has subordinated his party’s social and economic positions to Likud’s liberal economic agenda and has received a mixed reception among the party rank and file. He is running for party leader against four challengers. They are Histadrut labor federation leader , former Prime Minister , Infrastructure Minister Benjamin Ben Eliezer, and Minister without Portfolio Matan Vilna’i. Barak and Peretz want to pull out of the government, and Peretz, who projects himself as champion of the working class, is promoting a social welfare agenda. Basic Facts Population ...... 6.2 million (2005 est.) Economy Population growth rate .....1.39% (2003 est.) Ethnic Groups ...... Jewish 80.1% (1996) Overview .... non-Jewish (mostly Arab) 19.9% (1996)* Gross Domestic Product growth rate ...... 3.9 (2004 est.) Israel has an advanced industrial, GDP per capita...... $20,400 (2004 est.) market economy in which the Inflation rate...... 0% (2004 est.) government plays a substantial role. Unemployment rate...... 10.7% (2004 est.) Most people enjoy a middle class Foreign debt...... $74.46 billion (2004 est.) standard of living. Per capita income is Imports..... crude oil, grains, raw materials, about the same as that in Cyprus, one of military equipment the wealthier, new European Union Exports ...... cut diamonds, high-technology members. Despite limited natural equipment, fruits and vegetables resources, the agricultural and industrial Main Trading Partners...... United States, sectors are well-developed. An Belgium, Germany, United Kingdom advanced high tech sector includes Sources: CIA, The World Factbook, 2004; and the aviation, communications, computer- Israeli government. aided design and manufactures, medical *within 1967 borders

CRS-4 IB82008 07-25-05 electronics, and fiber optics. Israel greatly depends on foreign aid and loans and contributions from the Jewish diaspora.

After economic declines in 2001 and 2002 due to the effects of the Palestinian intifadah (uprising) on tourism and the bursting of the global high-tech bubble, Israel’s economy has recovered since 2003. Finance Minister Netanyahu claims credit for the improvement. Under his leadership, the government has attempted to liberalize the economy by controlling government spending, reducing taxes, and resuming privatization of state enterprises. The chronic budget deficit has decreased, while the country’s international credit rating has been raised, enabling a drop in interest rates. Netanyahu’s critics suggest that cuts in social spending are widening the national income gap and increasing the underclass.

Current Issues

Prime Minister Sharon insists that disengagement from Gaza, despite its estimated $1.5 billion cost, will economically benefit the country because “optimism” in the political sphere will result in a rise in tourism, foreign investments, and consumption.

Now on Netanyahu’s agenda are reforms to end domination of the banking sector by two big banks, Hapoalim and Leumi. New legislation will require banks to divest themselves of mutual funds and other holdings. The Knesset also is considering reforms to decrease income tax rates and corporate taxes, while increasing capital gains taxes.

Foreign Policy

Middle East

Iran. Israeli officials state that Iran will pose a strategic threat to Israel if it achieves nuclear capability because, in their view, the aim of the Iranian theocracy is the destruction of Israel and the Jewish people. They add that they will not allow any country in the region to arm itself with nuclear weapons, citing Israel’s bombing of Iraq’s reactor at Osirak in 1981 as a precedent. They have called on the international community to thwart Iran’s nuclear ambitions to avert the need for Israeli military action. While U.S. Vice President Dick Cheney warned in early 2005 that Israel might act pre-emptively against Iran, Israeli Defense Minister Shaul Mofaz countered, urging a U.S. pre-emptive strike. In June 2005, however, Mofaz said that U.S. and European diplomatic and economic pressure could resolve the issue. Israeli officials also blame Iran for funding Hizballah and Palestinian terrorist groups that seek to obstruct the peace process. Relations between Israel and Iran are unlikely to change as long as theocrats hold power in Teheran; newly elected President Mahmud Ahmadinejad shares their views about the illegitimacy of Israel.

Palestinian Authority. During the Oslo peace process of the 1990’s, Israelis and Palestinians negotiated a series of agreements that resulted in the creation of a Palestinian administration with territorial control over parts of the West Bank and Gaza Strip. After Sharon came to power and during the intifadah, Israel refused to deal with the late Palestinian leader Yasir Arafat. Since Arafat’s death in November 2004 and the election of Mahmud Abbas as President of the Palestinian Authority (PA) in January 2005, Israel’s

CRS-5 IB82008 07-25-05 relations with the PA and its leaders have improved. Sharon and Abbas met at a summit in Sharm al-Shaykh, Egypt, in February, and promised to end violence and to take other measures. Israel has made some goodwill gestures toward the PA, such as releasing almost 900 prisoners, handing over two cities to PA control, showing some restraint in the targeting of Palestinian terrorist group leaders, and easing a few of the many roadblocks and other restrictions on Palestinian daily life. President Abbas and 13 Palestinian factions agreed to an informal truce in March, and violence has abated. Although Israeli officials continue to describe the disengagement from the Gaza Strip as unilateral, they have met with Palestinian counterparts to coordinate implementation of the disengagement plan.

Israel has 242 settlements and other civilian land use sites in the West Bank, 25 in the Gaza Strip, and 29 in East Jerusalem — all areas that the Palestinians view as part of their future state. Currently, it also retains military control over much of the West Bank and Gaza Strip, and is continuing to build a security barrier on West Bank territory to separate Israelis and Palestinians and prevent terrorists from entering Israel. Palestinians object to the barrier being built on their territory. Critics suggest that the barrier is taking the form of a future border between Israel and Palestine.

The Israeli government accepted the Roadmap, the framework for a peace process leading to a two-state solution, developed by the United States, European Union, U.N., and Russia, reluctantly and with many conditions. Sharon has stated that he would like to “give” the Palestinians a state, but he has not described his vision of one. The Palestinians fear that he foresees a state on about 42% of the territory of the West Bank as he suggested shortly after he became Prime Minister. Sharon contends that the Roadmap requires that the PA fight terror, by which he means disarm militants and dismantle their infrastructure. Abbas prefers to keep groups such as in the political system and refuses to disarm them. He even invited Hamas to join the government, but it refused. Despite these differences, Sharon is determined to implement his disengagement plan. He is likely to emphasize disarmament when the international community pressures him to revive a robust peace process after disengagement.

Egypt. After fighting four wars in as many decades, Israel and Egypt signed a peace treaty in 1979. In 1982, Israel withdrew from the , which it had taken in the 1967 war. Egypt and Israel established diplomatic relations, although Egypt withdrew its ambassador during the four years of the second intifadah, 2001-2005, because it objected to Israel’s “excessive” use of force against the Palestinians. Some Israelis refer to their ties with Egypt as a “cold peace” because full normalization of relations, such as enhanced trade, bilateral tourism, and educational exchanges, has not materialized. Egyptian President Hosni Mubarak has visited Israel only once — for the funeral of former Israeli Prime Minister . Outreach is often one way, from Israel to Egypt. say that they are reluctant to engage because of Israel’s continuing occupation of Arab lands. Israelis are upset by some Egyptian media and religious figures’ anti-Israeli and occasionally anti- Semitic rhetoric. Nonetheless, the Egyptian government often plays a constructive role in the Arab-Israeli peace process, hosting meetings and acting as a liaison. In March 2005, it helped secure the informal Palestinian truce and, in July, tried to prevent the truce from breaking due to violence between Palestinian factions and Israel and between Palestinian Authority security forces and the factions. Egypt wants Gaza to be peaceful after Israel’s disengagement and has offered to deploy 750 military border guards to secure the Gaza- Egyptian border (14 kilometers of land border and 3 km of sea). A memorandum of

CRS-6 IB82008 07-25-05 understanding reportedly will be signed shortly, and Egypt expects to deploy its forces by the end of July. After one year, the two sides will jointly evaluate the mission. Israel refused an Egyptian request to deploy military border guards, instead of police, for greater control of smuggling along the entire border in Sinai, which some Israelis argue would require a change in the military appendix of the 1979 peace treaty.

In December 2004, Egypt and Israel signed a Qualified Industrial Zone (QIZ) Agreement under which jointly produced goods will enter the U.S. market duty free as part of the U.S.-Israeli Free Trade Agreement (FTA). On June 30, 2005, Israel signed a memorandum of understanding to buy 1.7 billion cubic feet of Egyptian natural gas for an estimated U.S.$2.5 billion over 15 years, fulfilling a commitment first made in an addendum to the 1979 peace treaty. The deal includes cooperation in construction of infrastructure and may expand to other energy areas. Gas is not expected to flow before 2007. (See also, CRS Issue Brief IB93087, Egypt-United States Relations, updated regularly.)

Jordan. Israel and Jordan signed a peace treaty in October 1994 and exchanged ambassadors, although Jordan did not have an ambassador in Israel during most of the intifadah. Relations have developed with trade, cultural exchanges, and water-sharing agreements. Since 1997, Jordan and Israel have collaborated in creating 13 qualified industrial zones (QIZs) to export jointly produced goods to the United States duty-free under the U.S.-Israel Free Trade Agreement. Normalization of ties is not popular with the Jordanian people, over half of whom are of Palestinian origin, although King Abdullah II has attempted to control media and organizations opposed to normalization. The King is very supportive of the peace process, wants the Roadmap to be implemented, and has hosted meetings between Israeli and Palestinian leaders. He has offered to deploy Palestinian troops based in Jordan to the West Bank to assist with security, but Israel has rejected the offer. (See also, CRS Issue Brief IB93085, Jordan: U.S. Relations and Bilateral Issues, updated regularly, and CRS Report RS22002, Qualifying Industrial Zones in Jordan: A Model for Promoting Peace and Development in the Middle East? , January 26, 2005.)

Syria. Israel and Syria have fought several wars and, except for rare breaches, have maintained a military truce along their border for many years. Yet, they failed to reach a peace agreement in negotiations that ended in 2000. Since 1967, Israel has occupied Syria’s Golan Heights and, in , effectively annexed it by making Israeli law applicable there. There are 42 Israeli settlements on the Golan. Syrian President Bashar al- Asad has said that he wants to hold peace talks with Israel, but Israeli officials demand that he first meet several preconditions. They demand that he cease supporting the Lebanese Hizballah militia, which attacks Israeli forces in the disputed Sheba’a Farms area of Lebanon and communities in northern Israel and aids Palestinian militant groups. In addition, they want Asad to expel Palestinian rejectionist groups, i.e., those who do not agree with the Israeli-Palestinian peace process. Many Israelis, including Prime Minister Sharon, maintain that some or all of the Golan is essential for their security, and suggest that any talks will be aimed at securing Israel’s presence there. At this time, most observers believe that, without significant progress in the Israeli-Palestinian talks, the Israeli-Syrian track will remain moribund. (See also, CRS Issue Brief IB92075, Syria: U.S. Relations and Bilateral Issues, updated regularly.)

Lebanon. Israeli forces invaded Lebanon in 1982 to prevent Palestinian attacks on northern Israel. The forces were gradually withdrawn to a self-declared nine-mile “security

CRS-7 IB82008 07-25-05 zone,” north of the Israeli border. Peace talks in the 1990’s failed to produce a peace treaty, mainly, as some observers suggest, because of Syria’s insistence that it first reach an accord with Israel. Israel unilaterally withdrew from southern Lebanon on May 25, 2000. Lebanon insists that the Israeli withdrawal is incomplete because of the continuing presence of Israeli forces in the Sheba’a Farms area, in the region where Lebanon, Syria, and Israel meet. The United Nations has said that Israel’s withdrawal was complete and treats the Sheba’a Farms as part of Syria’s Golan occupied by Israel. Hizballah took control of the former “security zone,” and attacks Israeli forces in Sheba’a and northern Israeli communities. The Lebanese government considers Hizballah to be a legitimate resistance group and as a represented in parliament. Israel views it solely as a terrorist group and wants the Lebanese army to move into the south and to disarm Hizballah. (See also, CRS Issue Brief IB89118, Lebanon, updated regularly, and CRS Report RL31078, The Shib’a Farms Dispute and Its Implications, August 7, 2001.)

Other. Israel has diplomatic relations with Mauritania, and has interest or trade offices in Morocco, Tunisia, Oman, and Qatar. The latter four suspended relations with Israel during the intifadah.

European Union

Israel has complex relations with the European Union. Many Europeans believe that the Israeli-Palestinian conflict is a root cause of terrorism and Islamist extremism among their own Muslim populations and want it addressed urgently. The EU has ambitions to exert greater influence in the Middle East peace process. The EU is a member of the “Quartet” with the United States, U.N., and Russia which developed the Roadmap. EU officials appear to share Palestinian suspicions that Sharon’s disengagement plan means “Gaza first, Gaza only” and that it will not lead to the Roadmap process. They observe, with concern, Israel’s ongoing settlement activity and construction of the security barrier in the West Bank, which, according to the Europeans, contravene the Roadmap and prejudge negotiations on borders. Israel is cool to EU overtures because it views many Europeans as biased in favor of the Palestinians and hears an increasing number of European voices questioning the legitimacy of the State of Israel. They contend that the basis of such views is an underlying European anti-Semitism.

Some European representatives have met with or indicated their intention to meet with local Hamas leaders elected in December 2004 to oversee European-funded local projects. Israel asserts that the circumstances that led the EU to place Hamas on its list of terrorist organizations are unchanged and opposes actions that grant Hamas legitimacy at the expense of moderate Palestinian groups.

Israel participates in the EU’s Euro-Mediterranean Partnership Initiative, otherwise known as the Barcelona Process, and in the European Neighborhood Policy (ENP). And European countries combined are Israel’s second largest trading partner, after the United States, but the EU bans imports from Israeli settlements in the occupied territories. (See also, CRS Report RL31956, European Views and Policies Toward the Middle East, March 9, 2005, and CRS Report RL31017, The Barcelona Process: The European Union’s Partnership with the Southern Mediterranean, June 12, 2001.)

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Relations with the United States

Overview

On May 14, 1948, the United States became the first country to extend de facto recognition to the State of Israel. Over the years, the United States and Israel have developed a close friendship based on common democratic values, religious affinities, and security interests. Relations have been evolved through legislation, memorandums of understanding, economic, scientific, military agreements, and trade.

Issues

Peace Process. The United States has been the principal international proponent of the Arab-Israeli peace process. President Jimmy Carter mediated the Israeli-Egyptian talks at Camp David which resulted in the 1979 peace treaty. President George H.W. Bush convened the peace conference in Madrid in 1990 that inaugurated a decade of unprecedented, simultaneous negotiations between Israel, Jordan, Syria, Lebanon, and the Palestinians. President Clinton continued U.S. activism throughout his tenure in office and, in particular, facilitated the Israeli-Jordanian peace treaty in 1994. He also hosted the Israeli- Palestinian summit at Camp David in 2000 that failed to reach a peace settlement.

Secretary of State Condoleezza Rice has not named a Special Middle East Envoy and has said that she will not get involved in direct Israeli-Palestinian negotiations of issues. She prefers to have the Israelis and Palestinians work together. Israel reportedly rebuffed a U.S. attempt to have Lt. Gen. William Ward, whom Rice assigned to assist with Palestinian security reforms, also facilitate Israeli-Palestinian security coordination for the Gaza disengagement.

All recent U.S. Administrations have disapproved of Israel’s settlement activity as prejudging final status and possibly preventing the emergence of a contiguous Palestinian state. At times of violence, U.S. officials have urged Israel not use disproportionate force and to withdraw as rapidly as possible from Palestinian areas retaken in security operations. The current Bush Administration has insisted that U.N. Security Council resolutions be “balanced,” by criticizing Palestinian as well as Israeli violence and has vetoed resolutions which do not meet that standard.

The United States has never recognized Israel’s annexation of the Golan Heights which it views as a violation of international law. Former Secretary of State Warren Christopher said that the United States might be willing to guarantee security arrangements for the Golan in the context of a sound agreement. The current administration has not attempted to revive Israeli-Syrian peace talks.

Since taking East Jerusalem in the 1967 war, Israel has insisted that Jerusalem is its indivisible, eternal capital. Few countries have agreed with this position. The U.N.’s 1947 partition plan called for the internationalization of Jerusalem, while the Declaration of Principles signed by Israel and the Palestine Liberation Organization in September 1993 says that it is a subject for permanent status negotiations. U.S. Administrations have recognized that Jerusalem’s status is unresolved by keeping the U.S. Embassy in . However,

CRS-9 IB82008 07-25-05 in 1995, both houses of Congress mandated that the embassy be moved to Jerusalem, and only a series of presidential waivers of penalties for non-compliance have delayed that event. U.S. legislation has granted Jerusalem status as a capital in particular instances and sought to prevent U.S. official recognition of Palestinian claims to the city. (See also CRS Issue Brief IB91137, The Middle East Peace Talks.)

Trade. Israel and the United States concluded a Free Trade Agreement in 1985, and all customs duties between the two trading partners have since been eliminated. The FTA includes provisions that protect both countries’ more sensitive agricultural sub-sectors with non-tariff barriers, including import bans, quotas, and fees. Israeli exports to the United States have grown 200% since the FTA became effective. As noted above, qualified industrial zones in Jordan and Egypt are considered to be part of the U.S.-Israeli free trade area. The United States is Israel’s main trading partner. In 2004, the United States took 38.4% of its exports, while providing 15.6% of its imports. On the other hand, Israel took only about 1.12% of U.S. exports and provided less than 1% of U.S. imports. The U.S.- Israeli balance of trade favors Israel, with about a 8.41% U.S. deficit.2

Aid. Israel has been the largest recipient of U.S. foreign aid since 1976. In 1998, Israeli, congressional, and Administration officials agreed to reduce U.S. $1.2 billion in Economic Support Funds (ESF) to zero over ten years, while increasing Foreign Military Financing (FMF) from $1.8 billion to $2.4 billion. The process began in FY1999, with P.L. 105-277, October 21, 1998. Separately from the scheduled cuts, however, Israeli has received an extra $1.2 billion to fund implementation of the Wye agreement (part of the Israeli-Palestinian peace process) in FY2000, $200 million in anti-terror assistance in FY2002, and $1 billion in FMF in the supplemental appropriations bill for FY2003. For FY2005, Israel will receive $357 million in ESF, $2.202 billion in FMF, and $50 million in migration settlement assistance. For FY2006, the Administration has requested $240 million in ESF and $2.28 billion in FMF. H.R. 3057, passed in the House on June 28, 2005, and in the Senate on July 20, approves these amounts. H.Rept. 109-152 and S.Rept. 109-996 also support $40 million for the settlement of migrants from the former and take note of Israel’s plan to bring remaining Ethiopian Jews to Israel in three years.

Congress has legislated other special provisions regarding aid to Israel. Since the 1980s, ESF and FMF have been provided as all grant cash transfers, not designated for particular projects, transferred as a lump sum in the first month of the fiscal year, instead of in periodic increments. Moreover, Israel is allowed to spend about one-quarter of the military aid for the procurement in Israel of defense articles and services, including research and development, rather than in the United States. Finally, to help Israel out of its economic slump, P.L. 108-11, April 16, 2003, provided $9 billion in loan guarantees over three years, use of which has since been extended to 2008. As of July 2005, Israel had not used $4.9 billion of the guarantees. (For more details, see CRS Issue Brief IB85066, Israel: U.S. Foreign Assistance, April 26, 2005, and CRS Report RL32260, U.S. Foreign Assistance to the Middle East: Historical Background, Recent Trends, and the FY2006 Request, June 13, 2005.)

2 U.S. Department of Commerce, World Trade Atlas.

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Security Cooperation. Although Israel is frequently referred to as an ally of the United States, there is no mutual defense agreement between the two countries. On November 30, 1981, U.S. Secretary of Defense and Israeli Minister of Defense Ariel Sharon signed a memorandum of understanding (MOU), establishing a framework for continued consultation and cooperation to enhance the national security of both countries. In November 1983, the two sides formed a Joint Political Military Group to implement most provisions of the MOU. The Group meets twice a year. Joint air and sea military exercises began in June 1984, and the United States has constructed facilities to stockpile military equipment in Israel. On May 6, 1986, Israel and the United States signed an agreement (the contents of which are secret) for Israeli participation in the Strategic Defense Initiative (SDI/ “Star Wars”). Under SDI, Israel is developing the “Arrow” anti- ballistic missile with a U.S. financial contribution so far of more than $1 billion and increasing annually. The Administration has requested $78 million for the program for FY2006, and H.R. 2863, the defense appropriations bill, passed by the House on June 20, 2005, has recommended that the funding be approved. In 1988, under the terms of Sec. 517 of the Foreign Assistance Act of 1961, as amended, Israel was designated a “major non- NATO ally,” which affords it preferential treatment in bidding for U.S. defense contracts and access to expanded weapons systems at lower prices.

Other Current Issues

Military Sales. Over the years, the United States and Israel have regularly discussed Israel’s sale of sensitive security equipment and technology to various countries, especially China. Israel reportedly is China’s second major arms supplier, after Russia.3 U.S. administrations believe that such sales are potentially harmful to the security of U.S. forces in Asia. In 2000, the United States persuaded Israel to cancel the sale of the Phalcon, an advanced, airborne early-warning system, to China. In 2005, the U.S. Department of Defense has been angered by Israel’s agreement to upgrade Harpy Killer unmanned aerial vehicles (UAVs) that it sold to China in 1999. China tested the weapon over the Taiwan Strait in 2004. The Department has suspended technological cooperation with the Israel Air Force on the future F-35 Joint Strike Fighter (JSF) aircraft as well as several other cooperative programs, held up shipments of some military equipment, and refused to communicate with Israeli Defense Ministry Director General Amos Yaron, whom Pentagon officials believe misled them about the Harpy deal. According to Israel’s most reputable military journalist, the U.S. Department of Defense has demanded details of 60 Israeli deals Israeli with China, an examination of Israel’s security equipment supervision system, and a memorandum of understanding about arms sales to prevent future difficulties.4

H.R. 1815, the Defense Authorization Act for FY2006, passed in the House on May 25, 2005, Sec. 1212, would prohibit the Secretary of Defense from purchasing goods or services from any entity that knowingly transfers an item on the U.S. Munitions List to China. The provision targets the European Union, which was considering lifting the arms

3 Ron Kampeas, “Israel-U.S. Dispute on Arms Sales to China Threatens to Snowball,” Jewish Telegraphic Agency, June 8, 2005, citing a U.S.-China Economic and Security Review 2004 report. 4 Ze’ev Schiff, “US Imposes Sanctions on Joint Arms Projects, Israel Notes Desire to Settle Row,” Ha’aretz, June 12, 2005, FBIS Document GMP20050612613002.

CRS-11 IB82008 07-25-05 embargo it had imposed on China in 1989, but does not specify the EU and, therefore, could affect Israel.

On June 27, 2005, the Israeli press claimed that the United States and Israel had agreed to resolve the issue. As part of the resolution, Israel reportedly will cancel the UAV deal with China, and Defense Minister Mofaz will sign a memorandum of understanding to prevent future disputes during a visit to Washington. (The visit has been delayed due to the deteriorating security situation in Gaza.) In the meantime, an Israeli Foreign Ministry department has been established to supervise security exports.

Espionage-related Cases. In November 1985, Jonathan Pollard, a civilian U.S. naval intelligence employee, and his wife were charged with selling classified documents to Israel. Four Israeli officials also were indicted. The Israeli government claimed that it was a rogue operation. Pollard was sentenced to life in prison and his wife to two consecutive five-year terms. She was released in 1990, and moved to Israel, where she divorced Pollard. Israelis complain that Pollard received an excessively harsh sentence, and some Israelis have made a cause of his plight. Pollard was granted Israeli citizenship in 1996, and Israeli officials periodically raise the Pollard case with U.S. counterparts, although there is not a formal request for clemency pending. (See, CRS Report RS20001, Jonathan Pollard: Background and Considerations for Presidential Clemency.)

On June 13, 2005, Lawrence Franklin, a U.S. Department of Defense analyst, was indicted for the unauthorized disclosure of classified information to a foreign diplomat. Press reports have named Na’or Gil’on, a political counselor at the Israeli Embassy in Washington, as the official. Gil’on has not been accused of wrongdoing and will return home this summer. Israeli Foreign Minister Silvan Shalom strongly denied that Israel was involved in any activity that could harm the United States, and its Ambassador to the United States Daniel Ayalon declared that “Israel does not spy on the United States.” Franklin had been charged earlier with disclosing classified national defense information to a person or persons not entitled to receive it. Those persons have been identified as two former officials of the American Israel Political Action Committee (AIPAC), who were fired in April and have not been charged with a crime. Franklin has pleaded not guilty to all charges. He has not been charged with espionage.

Intellectual Property Protection. The “Special 301” provisions of the Trade Act of 1974, as amended, require the U.S. Trade Representative (USTR) to identify countries which deny adequate and effective protection of intellectual property rights. In April 2005, Israel was elevated from the “Watch List” to the “Priority Watch List” because the USTR determined that it had implemented an “inadequate data protection regime” and intended to pass legislation to weaken patent term adjustments. The USTR singled out for concern U.S. biotechnology firms’ problems in Israel and a persistent level of piracy affecting the U.S. copyright industry. Israel’s Minister of Industry, Trade, and Labor Ehud Olmert protested the USTR decision, saying that Israel is acting energetically against violations of intellectual property and that his country cannot be compared to others on the list, such as , China,

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Russia, Egypt, Brazil, and Argentina. The Israeli newspaper Ma’ariv claimed that pressure from U.S. pharmaceutical companies was responsible for Israel’s inclusion on the list.5

U.S. Interest Groups

An array of interest groups has varying views regarding Israel and the peace process. Some are noted below with links to their websites for information on their policy positions.

American Israel Public Affairs Committee: [http://www.aipac.org]

American Jewish Committee: [http://www.ajc.org]

American Jewish Congress: [http://www.ajcongress.org]

Americans for Peace Now: [http://www.peacenow.org]

Anti-Defamation League: [http://www.adl.org]

Conference of Presidents of Major Jewish Organizations: [http://www.conferenceofpresidents.org]

The Israel Project: [http://www.theisraelproject.org]

Israel Policy Forum: [http://www:ipf.org]

New Israel Fund: [http://www.nif.org]

Zionist Organization of America: [http://www.zoa.org]

5 David Lipkin, “ Olmert to US: Remove Israel from List of Intellectual Property Violators,” Ma’ariv, June 8, 2005, p. 2, FBIS Document GMP20050608618003.

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Map of Israel

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